Krista Waverly manages a fleet of 400 delivery trucks for Daniels Corporation.

Waverly must decide whether the company should outsource the fleet management function. If she outsources to Fleet Management Services(FMS), FMS will be responsible for maintenance and scheduling activities. This alternative would require Waverly to lay off her five employees.However, her own job would besecure; she would be Daniels's liaison with FMS. If she continues to manage thefleet, she will needfleet-management software that costs $9,500 per year to lease. FMS offers to manage this fleet for an annual fee of $375,000.

Waverly performed the followinganalysis:

Annual leasing fee for software

Retain In-House 9,500

Difference 9,500

Annual maintenance of trucks

Retained In-House 145,000

Difference 145,000

Total annual salaries of five laid-off employees

Retained In-House 165,000

Difference 165,000

Fleet Management Service's annual fee

Outsource To FMS 375,000

Difference (375,000)

Total differential cost of outsourcing

Retained In-House 319,500

Outsource To FMS 375,000

Difference (375,000)

1. Which alternative will maximize Daniels's short-term operatingincome?

2. What qualitative factors should Daniels consider before making a finaldecision?

Difference